Why ‘rate rage’ may not be coming for this market after all

Dragonfly Capital’s Greg Harmon is sick of hearing about how the sky is falling on the stock market. He chides everyone — financial journalists included (ahem) — for constant scare-mongering when not much is really changing. This market is still in a long-term uptrend, he says.

Here’s his chart, with a big fat purple line headed gently north. That represents trend resistance, which is still rising, “a sign of a strong market,” he says. Read his full blog for more reasons why we shouldn’t worry so much.

Dragonfly Capital/StockCharts.com

But you can’t deny it’s been a bumpy ride, lately. Some say it may not be over, as European bond markets lead everyone around by the nose. And even if the market is seen as eventually shaking it off, it has made investors nervous. The Wall Street Journal’s MoneyBeat notes rising U.S. yields have been pounding high-dividend stock sectors such as utilities and real-estate investment trusts.

“It’s unsettling to the equity market when rates are moving this rapidly, because it’s not clear exactly why and where exactly they’re going to stop,” Paul Zemsky, chief investment officer for multi-asset strategy at Voya Investment Management, told WSJ.

If you want a little drama, our Chart of the Day shows what that Treasury selloff has looked like from one angle.

Back to the sky-isn’t-falling theory. We’ve got Dr. Doom himself in our Call of the Day, saying bond markets are not going to go into a “rate riot” when Fed rates do start to climb.

And if Dr. Doom can’t cheer you up, then check out this guy, who thinks the bond market has topped out, looked at from a technical perspective. “If I’m correct — and this is largely a positioning story — positions get squeezed. They get unwound. The pain runs its course. There’s blood on the street, and it comes to an end.” That was David Ader, chief Treasury strategist at CRT Capital, talking to CNBC.

Ader said that all bets would be off if the retail-sales number came in stronger than expected this morning. Let’s just say it wasn’t “wildly good.”

The quote

Reuters

“It is an absolute disastrous mess.”— Philadelphia Mayor Michael Nutter in the wake of that tragic Amtrak crash last night. At least six are dead and over 100 are injured.

The economy

April retail sales came in flat, falling short of a 0.4% forecast as shoppers kept up with that thrifty habit. Sales were revised up to show a 1.1% gain in March. More here. Import prices fell in April, even after a rebound for oil. Business inventories is coming at 10 a.m. Eastern.

Earnings

Zillow
US:Z
shares rose in late trade after a surprise adjusted profit.

GoDaddy
US:GDDY
fell in late trade, even though the web-hosting company gave upbeat guidance in its first earnings report since going public.

The buzz

Shares in Danaher
US:DHR
should see action after it said it’s agreed to buy Pall Corp., a maker of fluid-filtration systems,
US:PLL
in a deal valued at $13.8 billion. Pall surged Tuesday on reports of a takeover bid.

Owens-Illinois
US:OI
says it’s agreed to buy a Mexican glass-container business from Vitro
MX:VITROA
for $2.15 billion in cash. The U.S. bottle maker’s shares are rising in premarket trade.

A bunc of deals todayGas-infrastructure company Williams Companies
US:WMB
has struck a deal to buy the public equity of natural-gas company Williams Partners
US:WPZ
whose stock soared in premarket after the news.

Shares of Vertex Pharmaceuticals
US:VRTX
got a late bump after an FDA panel advised the agency to approve the company’s cystic fibrosis treatment.

GE
US:GE
is putting its $5 billion Japanese commercial-finance unit up for sale.

Facebook
US:FBofficially kicked off a partnership with the New York Times
US:NYT
and others on Wednesday. The Times will start publishing articles directly onto the social-media website’s news feed, as will BuzzFeed, NBC News, NatGeo and five more publishers.

The chart

How does the price of 10-year U.S. Treasury bond
BX:TMUBMUSD10Y
look on a 15-week basis? BTIG’s chief strategist Dan Greenhaus gives you a pretty good idea of what we’ve been seeing with this chart. He says the 15-week change is among the worst readings since the early 1980s:

BTIG LLC

Then he notes volatility on the 10-year with this chart. That volatility has been ramping up at a pace not seen since the Oct. 15 flash crash, according to Bloomberg.

BTIG LLC

The call

Bond investors braced for “a rate riot or rate rage” are getting anxious for nothing, says economist Nouriel Roubini. That’s because the Fed has already pretty much told us what it’s going to do, he says.

New York Fed President William Dudley did say yesterday that “market participants should be able to think right along with policy makers, adjusting their views about the prospects for normalization in response to the income data.” So, when liftoff comes, that should be no big surprise, Roubini said.

“It’s not going to be a significant surprise. As the economy recovers, as inflation goes higher, gradually long-term interest rates are going to go higher,” Roubini, aka “Dr Doom”, told CNBC in an interview.

Of course, that doesn’t mean markets aren’t going to get some short-term volatility. Lack of market liquidity or market makers could mean that “when there are some surprises — economic or otherwise — or inflation, then you’re in a very volatile environment for bond yields in the U.S. and Europe,” he says.

As for stocks, Roubini says the market is looking a bit frothy, but not bubbly. Read the full interview here.

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